The coalition agreement of the new German government includes the plan to introduce tax incentives for research and development. Several different types of tax incentives are currently under discussion, particularly a support in the form of a tax credit on R & D expenses.
Proposals for the design of such incentives are out so far but – to our knowledge – only few estimates of the fiscal costs of the various alternative support schemes have been made. This contribution closes the gap by quantifying the fiscal costs of selected alternative R & D tax incentives with the help of the micro-simulation model ZEW Tax-CoMM. We focus on first-order effects without adaption of behaviour of the participants.
According to the simulations we carried out, the effects on fiscal revenue of the discussed incentives would be between 464 million and € 5,701 million €. As a result, the refund option for the tax credit on corporate tax and on business tax is vital, as otherwise a third of the corporations would not or only partially benefit from the incentive effect, resulting in severe distortion between profitable and non-profitable companies. Variation in the level of support for SMEs and large companies can effectively limit the revenue effects. A two-division of the rate of support for SMEs in 12% and 4% for large companies, both on R&D staff costs, leads to a significantly reduced revenue effect of € 1,060 million. If the funding rate for SMEs is increased to 25% while it remains at 4% for non-SMEs, the result is a volume effect of € 1,308 million. The results recommend abandoning the idea of a cap for the tax credit equal to an absolute value as severe distortions among large corporations could occur. An especially pragmatic design could be the settlement of the tax credit with wage withholding. In this case, the refund option would be dispensable and the resulting monthly payment would also have a very timely liquidity impact for the company.
Elschner, Christina, Christof Ernst and Christoph Spengel (2010), Fiskalische Kosten einer steuerlichen Förderung von Forschung und Entwicklung in Deutschland - Eine empirische Analyse verschiedener Gestaltungsoptionen, ZEW Discussion Paper No. 10-019, Mannheim.